The Agrarian Minister for Brazil, Guilherme Cassel, announced Friday that he and his governmental peers are extremely concerned that foreign entities are entering Brazil and acquiring too many tracts of rural farm land. He claims that Brazil’s strategic interest – that of being able to provide food for its citizens in the future – is being threatened. No doubt he envisions that as the world’s population continues to grow and as income levels increase across the globe, the consumption level of food will also increase significantly, thus perhaps putting a strain “on Brazil being able to provide food, natural resources and water for its own people in the future. The Brazil government’s strategic need to provide and to plan for that provision of sufficient foodstuffs is paramount.” Minister Cassel’s quote provided by the newspaper Valor Economico is, “We do not need foreigners to produce food in Brazil. This is the policy of President Luiz Inacio Lula da Silva. Because of food security, Brazilian lands must remain in Brazilian hands.” The minister’s spokesperson, Denise Mantovani, stated that 4 million hectares (10 million acres) had been registered as purchased by foreigners or foreign owned business entities since 2008. The upshot is, he announced that an amendment will shortly be debated wherein foreign farmland ownership will be strictly controlled and limited.

The news hit the press just before the weekend so there has not yet been any recorded public reaction. However, in light of the booming agricultural industry and its investment (Brazil enjoyed a US$60 billion positive trade balance in 2008) and the large proportion of FDI in Brazil dedicated to the agricultural sector, I know that many global businesses and experts will react negatively to this effort and I can guess what they will say. First, they will no doubt state that this is just an excuse to practice another form of protectionism and that it is another example of Brazil’s chauvinistic economic and bureaucratic policies that have plagued the country and its development for decades, just like the Daedalian bureaucracy that the government refuses to straighten out and streamline. They will add that Brazil has a larger land surface area than the continental USA, has generally more fertile soil and it does not have the vast stretches of deserts and mountains where agricultural exploitation is limited. Thus, the feeling will be that the current Brazilian administration’s claim that they need to protect the natural patrimony of their fellow citizens is a nationalistic reaction to Brazil’s entrance into the global market (much like how some US citizens reacted in the 1980’s when many Japanese investors acquired several landmark properties). The comment will be that Brazil’s government wants to reap the benefits of a globally connected economy, but that it does not wish to play on an open or a fully accessible playing field.

Is Minister Cassel’s initiative a cry of agricultural jingoism or a legitimate concern to protect their resources for future generations? Probably a lot of the former and a little of the latter. First, one needs to understand that there is a passionate sentiment of territorial autonomy that has run strong in Brazil for over 100 years, and that there exists a strong cultural concern and anxiety for “protecting” the country’s assets from foreign invaders. (Mexico shares this characteristic. The best example is the strong public resistance to any form of privatisation of the oil sector which the Mexican government, under then socialist President Lazaro Cardenas, expropriated in 1938 to the resounding approval of Mexicans.) One just needs to reflect on the Brazilian oil sector; only five years ago it was quasi-privatised and the government still retains the ultimate authority, above private interests. This latest “incursion” of foreigners into Brazilian land ownership is a sign to some Brazilians that they could lose control of their own destiny. However, it is important to note that a law already exists in Brazil that states that only residents and citizens of Brazil may own rural tracts of agricultural land. And many foreign companies and individuals have side-stepped this edict by setting up Brazilian shell companies and using that legal and fiscal status to acquire large swathes of farm land. The current government has cried foul and now wishes to stem the tide of the illegal invasion. Of course, in the industrialised countries these land ownership restrictions do not exist an open and free market reigns.

The new statute, or amendment apparently, that is being prepared would further define and restrict the rights of “fiscal shell residents” from further acquisition and ownership of the agronomical land parcels.  The amendment may even revoke title of land already purchased by foreigners.

How may this affect agricultural investment in Brazil? My perception is that it will have very little negative effect; investment and growth will continue due not only to domestic demand, but international demand as well. However, I will speak to our Cracker Jack team of agro-industrial experts in Brazil and get back to you with their insights for another blog post.

By the way, in Costa Rica a law exists that restricts foreign ownership of beachfront property, however, foreigners sidestep this law also by setting up Costa Rican trusts held by their Costa Rican fiduciaries. The government realises that this is occurring and they openly allow it. And, as such, Costa Rica has been able to enjoy a rich and promising economic boom that has helped out most of its citizens. At least I hope the Costa Rican government fully allows it; I may have just let the cat out of the bag and made enemies of thousands of people.

-David Berger

Based in Miami, David Berger is Managing Director for Latin America & The Caribbean region at NAI Global.